Digital Chocolate

Case Analysis

Sakthivel Shilpi Saagarika Rakesh SAkashdeep

Digital Chocolate is an innovative gaming company led by Trip Hawkins. Digital Chocolate

has young and passionate employees and this has translated into many successful, original

gaming titles. The Company was started in 2003 and has grown globally through these

strategic acquisitions. Hawkins’s vision and leadership has enabled Digital Chocolate to find

teams that culturally fit for acquisitions. With teams in San Mateo(Headquarters),Helsinki

Finland , Barcelona Spain and Bangalore India, Trip Hawkins has been able to reduce costs

and create games with global prospective. Digital Chocolate began its journey developing

games and distributing them through various wireless carriers. Then in mid 2008 it began

distribution through consumer marketplaces such as the App store. Now it is on the verge of

entering the exciting world of social gaming.

Current Scenario:

Trip Hawkins is on a flight back from Helsinki, Finland excited to be able to test the

prototypes of the new Social games developed by the Finland Team. Trip Hawkins has had a

vision of combining social interaction with games from 1970, but until till today he hasn’t

been able to find the technology to resonate his vision. Thus Trip Hawkins is excited about

the prototypes.

Trip Hawkins knows that he has some Management decisions to make regarding the

development of Social games, the organisational structure and strategic alliances going

forward. Wrong choices could affect the existing company structure and culture.

Digital Chocolate’s Success Story:

Fiedler’s Cognitive Resource Theory is “A leadership theory that focuses on the conditions in

which a leader’s cognitive resources (intelligence, expertise, and experience) contribute to

effective leadership”.

Firstly, Trip Hawkins has been the integral part of the success of Digital Chocolate.

Trip Hawkins has the expertise as he has been developing games since his teenage years; he

complimented his interest by getting formal education from Harvard in the same field. He has

a wide range of experience (Apple, EA, 3DO) that came together to become the backbone of

the company.

Secondly, the company’s strategic acquisitions have helped the company cut costs where

necessary, and innovate keeping in mind the global trends. Thirdly, there was effective use of

‘Functional departmentation’ by the company for the global teams.

Lastly, DC’s in-house developed Technology platform that has enabled the company to churn

out new gaming titles that can be used across many devices.

Mentioned below are the company’s characteristics, these have been very important to the

company’s success. These characteristics of the company have lead to effective processes and

increased profits. Trip Hawkins has to consider these before coming to a decision on his

future plans.

Company Characteristics – Important to the Company Success Story:

Culture:

Trip Hawkins, the founder, has been able inculcate a strong culture in the company. He

knows from experience that in a creative space inter personal relations are very important and

the environment has to be conductive to change. The biggest contributor for DC’s culture is

‘The Founders role’. He has been able to bring in the culture of ‘free flow of information’

through the idea blogs. Everyone’s idea is evaluated equally.

He believes in a flatter organisation and to some extent has been able to achieve the same for

the company. His decision strategy is consensus from all senior management for his

decisions.

He knows the importance of ‘ agility and change’ in the gaming industry and through his

careful screening process has been able to ensure his employees are comfortable with change

and also fit perfectly with DC’s culture.

DC gives lot of importance to communication. Calls happened very often with all the teams.

Every Friday afternoon game builds were uploaded on the website thus enabling everyone to

be up to speed on what was happening.

Another important aspect of the culture was the simple procedures followed. The appraisal

process just has a few simple questions, the presentations has a simple template to be

followed.

DC has facilitated a learning environment that fosters positive attitudes and constructive

criticism provides your employees the motivation to want to change.

Values:

Trip Hawkins valued integrity and equality as this was evident when he changed the names of

his email lists to be politically correct. He has built the company around certain core values

(Energy, Innovation, Excellence, Integrity, and Ownership) from the beginning and thus there

has been no ambiguity in the value. He ensured the values remained intact through the Hiring

process and also by firing solo flyers.

Communication and Coordination:

DC has global teams and though Trip Hawkins handpicked the teams the different

nationalities and time spans does make the communication difficult.

DC’s strong culture has facilitated good communication and effective use of ‘Functional

departmentation’. The different teams have been able to learn and co ordinate their efforts

through effective ‘Integration’.

DC has used the ‘liaison’ roles method (One person is assigned to help reach co ordination

between his or her department and another department) between the teams and the head

quarters to ensure co ordination.

Future Consideration for Trip Hawkins:

Strong Culture, Values and Communication have ensured innovative games and financial

success. Thus Trip Hawkins has to keep in mind that these remain intact or get enhanced as

and when he makes his decision for the social gaming.

Organisational Structure and Strategy is very important to the decision that Trip Hawkins has

to make. He has options to change the structure of teams or to strategically merge or acquire

new teams. Thus understanding the existing structure and strategy and then deciding the best

option and how the new options will change the existing organisation is a significant

decision.

Organisational Structure:

The company has well defined functional teams. Each team has a specific function to perform

during the production of a game. Each team was specifically selected for the task; the teams

had expertise in their functional area.

No ‘Formalisation of roles’, there was flexibility in changing of roles by the senior

management.

In the lower levels Direct Supervision method is used. For eg; the audio designer reports to

production manager, and the artists reported to Art Director.

The senior management has different personalities and their roles in the organisation reflected

this. Thus there was good alignment of roles to management.

For example:

Loia had Coast Guard training and thus was a stickler about tasks and projects. This helped

his role as chief operating officer to ensure compatibility of games across platforms.

Paananean was made president of studios, he demonstrated the ability to manage creative

people, he knew the environment required to get creative outputs and he also understood the

what motivated each team.

Thus to ensure success in Social gaming Trip Hawkins has to make ensure he chooses the

right structure and head of team.

Future Considerations for Trip Hawkins:

Ambidextrous organisation:

An ambidextrous organisation can simultaneously exploit current competencies and explore

emerging opportunities. Exploration requires more of an ‘Organic Structure’ while

‘Exploitation’ requires and mechanised approached. Thus there has to be high levels of

integration and synergy. Historically companies have achieved success through ambidexterity

by having a specialised unit for exploration with its own culture.

Since there is a separation of the teams, the integration is highly important and this comes

through the senior management. The senior management have to co ordinate the units and

make sure the units do not get isolated.

For this model to succeed the management has to have clear and compelling vision

and ensure relentless communication.

Paananen also noted that in social games there is no start and end to the project. There is a

need for continuous iteration, thus social games would require organic structures.

Thus DC requires ‘Incremental Innovation’ for the Social Gaming.

This is a very important aspect that Trip Hawkins has to consider. Social Gaming is a new

field and needs exploration. His existing team is functioning well and the processes have

almost been mechanised over the years. (HBR The Ambidextrous Organization).

Collective Creativity:

Good people are more important than good ideas. Creativity and Innovation involves a large

number of people from different disciplines working effectively. According to Ed Catmull of

Pixar, collective creativity requires placing the creative authority to project leaders,

incubating ideas before rejection, continually challenging assumptions and also having active

feedback (HBR How Pixar Fosters Collective Creativity).

To emulate Pixar’s success in collective creativity Trip Hawkins has to find right

talent.

Strategy:

Gaming Environment: The gaming industry is a highly ‘dynamic’ and competitive industry.

‘Uncertainity’ is the biggest challenge and requires meticulous strategies to confront them.

There is new developments everyday and innovation is the key. Gaming Industry is also very

‘Resource dependant’ industry. The quality of games produced is directly related to the

gamer developers. Thus need for superior game developers who understand the changing

environment.

Trip Hawkins understands the environment and always tried to remain on step ahead of

competition. He understood the gaming world and knew that the future was mobile games.

Now he knows and understands that there is a lot to gain from the Social Gaming Industry.

His strategy until now has been acquiring small companies with good talent across the globe.

This strategic move also helped him to put his venture into operation in a very short span of

time, capturing a significant early market share.

In Finland he retained the CEO as president of studio; this was also part of his strategy to

which led to success of the mergers and acquisitions.

Digital Chocolate is not directly involved in a strategic alliance, but all the companies chosen

for acquisition had strategic alliances with consumers , who are the leading network operators

in that geographical market.

Another strategy that is apparent from the case is that he always tests the waters before diving

in. He tested the Iphone with a few games then dedicated a whole team to it.

Through his careful selection process he has ensured that employees are open to change and

thus his company was quickly able to adapt to changing environment needs.

DC has also been always aware of the competition and done research on them.

Future Considerations for Trip Hawkins :

Environmental uncertainty requires more information to be processed by the organisation to

make fast and adequate decisions. Social Gaming is an emerging field and thus will require

the team to react fast to feedback.

Base Criteria to Evaluate the Choices:

From the above analysis it is clear that the company can attribute its Financial Success to its

Strong Culture, Good communication and Coordination, Good management team and

importantly its structure and strategic mergers and acquisitions.

Thus before making decision Trip Hawkins has to ensure:

1. The culture of the existing organisation is retained

2. The Core Values of the existing organisation remain

3. Proper team selection and leader selection

4. Existing structure and operations of organisation not affected

In addition to this Trip Hawkins has mentioned that he wants

5. to be involved in every step of the development, as Social Gaming has been his

vision.

6. to get into this industry in a couple of months, thus his decision should also consider

these two constraints.

7. Lastly and most importantly, the DC should be profitable

Option 1: Buy a start up with winning social titles : Trip has been successful in the past with

his mergers and the companies have satisfied all the criteria. This maybe be time consuming

as Trip Hawkins will have to search a lot to find the right team to fit the culture of DC thus

criteria 6 is not satisfied. There is a possibility the culture and core values might not match.

Thus criteria 1 and 2 may not be satisfied. The acquired start up may be used to certain way

of operation and thus might not like Trip Hawkins to be involved in every step thus criteria 5

is not satisfied

Option 2: Specifying one office as “Social Gaming”: There can a specialised group for Social

gaming either in Spain or in San Mateo. This approach fulfils all the criteria. It also enables

Trip Hawkins to monitor the progress. This group can be placed under Shah who has the

expertise in this field. Another important aspect of this approach is that Trip Hawkins can

implement An Ambidextrous Organisation and also have Shah report to him directly thereby

ensuring the synergy with the other part of organisation. The existing organisation is not

distracted and thus operates efficiently.

There may be a scenario where the employees get de motivated because they are not given

the opportunity to work on this new technology. This maybe overcome by having trainings

for interested employees on Social Gaming. Organizational change causes employees to feel

apprehensive, fearful, and insecure about their future. This can be overcome by Trip Hawkins

addressing the employees and explaining their transition.

Options 3: Group of Employees from each location to form tracks: This option satisfies

criteria 1 to 3. But taking employees from existing location to form tracks reduces the

available employees to perform other operations thus may not satisfy Criteria 4. Since the

teams are in different locations Criteria 5 and 6 also may not get satisfied as Trip Hawkins

may not be about have control on all operations and having global teams causes response

times to get compromised.

Option 4: Searching for right team for certain time then using option 2. Trip Hawkins has

been successful in the past with this mergers and acquisitions, thus if he finds the right teams,

within a certain span of time and at the right price (All criteria satisfied) he should consider

this option. If he finds the right team then the development of social games will be quick. But

After the certain time he should consider option 2.

Pros and Cons:

Option 1)

STRENGTHS : Quick Start Acquire Existing game titles Grow Expertise Build and work on existing relationship

of company acquire.

WEAKNESS : Not for sale. Too Expensive End up with less equity during merger

OPPORTUNITY : Enter the social gaming industry with an

organisation with expertise and market presence.

With effort successful acquisition might occur like in the past.

THREATS : Might alter the work culture of DC Might not fit in the DC’s structure.

Option 2)

STRENGTHS : One office with expertise to develop

social games. Existing departments do not get

disturbed Hawkins will develop first game to

guide High Productivity.

WEAKNESS : If office is opened in Spain, developing

platform for social gaming will be difficult without San Mateo getting involved.

Expensive to open new office in US Time consuming

OPPORTUNITY : Open office in San Mateo, where

company’s head office is situated. Open office in the US where majority

consumers of the social gaming are present.

THREATS : Creative team of Finland will feel

demotivated. Demotivated employees might leave the

organisation.

Option 3)

STRENGTHS :

Hand pick employees.

Interested/Motivated employees

volunteer themselves.

Appeal to global customer base.

WEAKNESS :

New department would distress the

existing flow between the offices.

Would take time to develop and work

effectively.

Coordination might be an issue.

Tedious process.

OPPORTUNITY :

Hawkins will be able to guide the teams

effectively by participating in

development of first game.

.Culture and structure remain intact.

Harness the strength from each office

and repeat success by getting work

done by special offices.

THREATS :

Employees who are not picked for

division might feel demotivated.

Demotivated employees might leave the

organisation (Loss of talent) .

Recommended approach:

Since he has been successful in the past on acquiring companies he should look for

companies and try finding ones with the right culture and talent. If he finds the right company

then he can run that start up separately and thus produce his social games quickly and

effectively. With Shah’s help he may be able to identify the right companies faster.

Keeping in mind the base criteria and also the pros and cons, he should look for a while and if

he still has not found a company, Trip Hawkins should consider forming a “Social Gaming”

Team under Shah.

Options: The team could be in San Mateo, Spain or Finland.

San Mateo: United States has a big market for Social Games thus San Mateo is good option.

Proximity to head quarters thus integration and control is easier. The focus of the Indian and

Californian offices has been synchronising with different networks and systems, and

administrative activities. These fundamental activities should be continued as the primary

focus of these two operation centres.

Spain: Spain has young and energetic developers. They will require the San Mateo team for

platform engineering, but this team already has good rapport and communication with

headquarters.

Finland: This is the design hub and backbone of existing operations.

Options: The team should contain new talent or existing talent

Shah should be given the discretions to form the teams. He is experienced in this field and

thus will be a better judge of it.

Existing employees also should be screened. Interested and not selected candidates could be

made to go through training thus keeping the employees motivated.

Therefore we recommend specialised group from Spain. Shah will work with them from the

location and report to Trip Hawkins. Shah can incorporate the culture required to obtain

maximum benefits.

Appendices

Strategic Response Model:

This model shows how the environment shapes the strategic response of a company.

Objective

Organizational Environment

Uncertainty Resources

Perceived Organizational Environment

Perceived Uncertainty Perceived Resources

Strategy Formulation

Strategy Implementation

Structure Merger/Acquisition

Organizational Effectiveness

Managerial Experience and Personality

Saurin Shah, Director

Testing Manager Sales & Marketing ManagerDevelopment Manager

Game Developer

Map of Innovation:

Incremental innovationssmall improvements in existingproducts and operations

Architectural innovationstechnological or process advances tofundamentally change a componentor element of the business

Discontinuous innovationsradical advances that mayprofoundly alter the basis forcompetition in an industry

NewTeam

ExistingTeam

Map of innovation helps company understand the needs of company.

Implementation of Option 2:

Trip Hawkins, CEO

Game Tester

Bibliography:

Organizational Behaviour by Gary Johns and Alan M. Saks

HBR articles

http://www.innovaders.com/innovation/general.htm